Bank of Thailand keeps rates unchanged, trims growth outlook amid stimulus uncertainty

The Bank of Thailand (BOT) has decided to maintain its key interest rate, asserting that the existing level is conducive to supporting the nation's economic recovery. However, the central bank has revised its growth forecast downward. The BOT acknowledged the uncertainty surrounding the government's controversial initiative to distribute 500 billion baht ($14.38 billion) to 50 million Thais to boost spending.

BOT's assistant governor, Piti Disyatat, stated that although interest rates are considered low, they are deemed suitable for the medium-term prospects of the Thai economy. The rates are intended to address potential risks associated with the government's "digital wallet" policy. The proposed distribution plan, scheduled for May, has faced legal challenges and opposition in parliament, with concerns raised by economists and former central bankers about possible fiscal strains and inflationary pressures.

In a unanimous decision, the BOT's monetary policy committee concluded a year-long tightening cycle by maintaining the one-day repurchase rate at 2.50 per cent, the highest in a decade. This comes after a series of rate hikes totalling 200 basis points since August of the previous year to curb inflation.

Future rate speculation

Despite keeping interest rates steady, the BOT has revised its economic growth projections for 2023 and 2024 downward, fuelling speculation that it might consider reducing borrowing costs in the latter half of the next year if domestic and global demand fails to rebound.

The bank has lowered the growth forecast for the current year to 2.4 per cent from the previous estimate of 2.8 per cent and slashed the 2024 growth outlook to 3.2 per cent from 4.4 per cent. Notably, if the digital wallet policy is implemented, the BOT anticipates a growth rate of 3.8 per cent for the next year.

While the current interest rate is deemed appropriate, the BOT emphasised the need for policy flexibility given the uncertain economic outlook. All 28 economists surveyed by Reuters had predicted that the BOT would maintain its current stance, with the median forecast indicating no policy changes until at least July 2025.

Kobsidthi Silpachai of Kasikornbank noted a balanced risk between growth and inflation, expecting rates to remain unchanged for a year. However, Capital Economics suggested that policy cuts are likely in the second half of the next year, citing low inflation and a potentially underwhelming recovery.

Thailand's headline consumer price index (CPI) in October saw a 0.31 per cent year-on-year decline. The BOT revised its inflation projections, expecting 1.3 per cent for this year (down from 1.6 per cent) and 2.0 per cent for 2024 (excluding the impact of digital wallet spending, compared to the earlier projection of 2.6 per cent). The BOT targets headline inflation within a range of 1 per cent to 3 per cent.

Amid the economic challenges, the BOT forecasts foreign visitor arrivals at 28.3 million for this year and 34.5 million for the next, compared to the pre-pandemic record of 39.9 million arrivals. Exports, a key driver of growth, are anticipated to decline by 1.5 per cent this year due to weakened global demand but are projected to rebound with a 4.3 per cent increase in the next year.

(With Reuters Inputs)